Color Paint Shop, Inc. (459 Ellis Avenue, Harrisburg, PA 17111), is an accrual basis taxpayer that paints automobiles. During the year, the company painted Samuel’s car and was to receive a $1,000 payment from his insurance company. Samuel was not satisfied with the work, however, and the insurance company refused to pay. In December 2011, Color and Samuel agreed that Color would receive $800 for the work, subject to final approval by the insurance company. In the past, Color had come to terms with customers only to have the insurance company negotiate an even lesser amount. In May 2012, the insurance company reviewed the claim and paid the $800 to Color. An IRS agent thinks that Color, as an accrual basis taxpayer, should report $1,000 of income in 2011, when the work was done, and then deduct a $200 loss in 2012. Prepare a memo to Susan Apple, a tax partner for whom you are working, with the recommended treatment for the disputed income.